I recently emailed the link to Jerome a Paris' diary about the financial market problems we're experiencing to a handful of friends, including two Republican friends. I probably shouldn't have, but my subject line was "I was right," as I've been asking them to explain to me how money can breed more money without some sort of basic tangible asset underlying it all. None of them ever bothered to respond to my original request, and only replied once I'd sent them a challenge, to their free market primacy, as it were.
So below I post first the reply I received from one of those republicans (who actually works in theatre, this always mystifies me). Then my reply, which I think is damn thoughtful. Hope you enjoy.
Okay - the reply to my email with the link to Jerome a Paris' diary:
I've got to say that I don't really get the point of the posting other than to say that rich capitalist pigs are bad. What is the solution? More regulation? How? Will the government cap interest rates? That will essentially control the price of money an limit people who are poor or have bad credit from getting loans. Will the government require higher down-payments? Again, this will exclude many people from potential home ownership. If a bank wants to accept a high risk loan, it is their right to do so. The government can't tell them who to loan to and how much to charge for interest. It is up to the bank to determine those risks and rewards. More regulation would hurt ordinary people with good credit as well because then banks would have no incentive to offer better rates than their competitors if the rates are fixed.
The banks and the homeowner/speculators started to panic when home prices started to fall. Both sides made the assumption at the onset that 1) the property would not lose value and 2) the value of the property would always be more than the value of the mortgage. Well, when housing prices fell that pretty much screwed some (about 20%) of the sub-prime mortgages. This credit crisis was created (IMHO) when there was too much money in the system. Banks were sitting on loads of cash with nothing to invest it in so they had to come up with creative ways of getting people who would not ordinarily get a loan to qualify. (It should be noted that this glut of cash is a major cause of the falling dollar) There was also a booming housing market that everyone wanted in on it. The author has a bizarre expectation that analysts and risk managers must be infallible and have some sort of crystal ball to predict the future. That's not how it works. The sub-prime mortgages were (are) a high-risk investment, and some banks, like Bear Stearns, were over-exposed to the risks.
Much of the posting looks like boiler-plate Marxist diatribe that could have been written at the turn of the 20th Century and just saved on autotext. What "worth" is being taken away from "ordinary workers?" How did de-regulation cause this? What are the institutions that will be "utterly destroyed?" And most importantly what is his solution? If there were a regulatory solution it would be in place to prevent economic contractions and recessions. But these things happen. Since the spring of 2008, the US has had 22 consecutive quarters of growth so a recession for 2 quarters (IF it happens) is not quite an economic armageddon. If the government could control the unemployment rate, it would never be over 3.5%. If the government could control economic expansion, it would be a robust 4% per quarter with a mere 2% inflation every year. But the government doesn't and shouldn't have the ability to control the economy. It can throw little switches to stimulate or depress growth, but it's up to the market to actually have an impact on the economy.
This is my second email - the first was definitely flaming the republicans (the second republican in the email thread replied to the above with an Amen!). I'm not going to block quote this, since it's my writing and the point of this diary:
I’m really sorry for the flame/screed I sent out yesterday. I don’t apologize for my views, but I do apologize for my tone. Patience is a virtue I have always struggled with, and apparently I struggle with tolerance too. Passion, though, I’ve got that in abundance.
So, having calmed down a bit, I would like to offer up a theory I’ve studied a great deal.
In her book Having Faith, biologist Dr. Sandra Steingraber discusses a theory – that in society today, around the world (not unique to the US at all, although Europe seems to be getting it and changing) there is the overwhelming tendency for the general public to bear the burden of various efforts. In her book, she uses thalidomide as one example. German scientists discovered/created the drug thalidomide. It worked fabulously for morning sickness and women around the world took it with excellent results. Those scientists, though, had not considered or studied the effects of the drug on the developing fetuses. At the time, those scientists thought that the placenta was much like a protective shield, little got through it. How wrong they were. I think we all know people who are "thalidomide babies," with stunted limbs, flippers for hands, etc.
Well, this theory applies to so much in our world as we know it. Cigarettes for example – it was known to cigarette companies that Nicotine is addictive and that smoking cigarettes causes lung cancer, and yet they are allowed to sell them. Why are they allowed to do this when the general smoking public has to bear the burden for them to be able to sell stuff to make money? Lead paint on toys – it is certainly cheaper for companies to send their manufacturing divisions overseas. It allows us to buy toys at lower prices, sure. Then those toys are sent back to the US and little toddlers chew on them. The lead (and this is well studied scientific fact) hinders or disturbs the development of their brain. Kids who ingest enough lead will grow up with issues like ADD and ADHD and impulse control, and it doesn’t take all that much ingested lead. There are studies that display the link between the rise in the use of leaded gasoline and the rise in violent crime (with a 23 year interim, for the children affected by the leaded gasoline to reach maturity/the age at which they are most likely to commit crimes). The trend lines are pretty much identical, as are the trend lines in the decline of leaded gas and violent crime (in the US). So, because it is cheaper to manufacture things in a country where they still allow/use lead paint, our children must bear the burden so those companies can make more money. And this is just my theory, but several Middle Eastern countries, including Iraq, still use leaded gasoline. Think about it.
The landfill I’ve been fighting an expansion of here in Peoria. It accepts lead, hexovalent chromium, certain levels of PCBs, mercury – various hazardous, toxic chemicals. It’s a mere 3 miles from downtown Peoria. There’s an apartment complex 250 yards away from it and a middle school immediately upwind (just a few blocks uphill). It sits squarely on top of our aquifer, which is part of a larger aquifer that pretty much underlies all of central Illinois. Sure, the landfill was established before the city expanded out that far. But now it needs to close, that’s what we’re fighting for. People argue that the owner/company is a good company, and they are responsible about what they do. I actually agree with that. But, the fact still remains that these are dangerous chemicals, they bury them over our primary source of drinking water, it is now far too close to the city (which already has a significant lead problem in our children), and it’s time to close. But that would force the company to spend a lot of money to find a new location and get a new permit for their hazardous waste facility, or simply lose this revenue stream. So which is it? Is it incumbent upon the general public to bear the burden of toxins in their back yard so that this company can continue to earn money from what is about 1/4th of their total operations. Or, is it incumbent upon the company to ensure the health and safety of the general public, and invest what they must to either close the hazardous waste landfill and take the hit on that part of their profits, or spend what is necessary to establish this facility in a safer location?
I think this theory does apply to the financial/banking/mortgage industry as well, as we’ve been discussing. Why is it the greater right of a company to sell what they know is a risky mortgage? Why is it incumbent upon the general public, who aren’t bankers or economists, to bear the burden of risky investments by those who understand the risk far better? Why is it the fault of the general public that these risky investments were created, and that these risky investments were sold as viable ways for people to improve their situation? People just wanted nicer houses (basic human nature), investors and bankers understood the risk (well considered business decisions).
Why is it a greater right of a company to sell their product or service than for the public to avoid hazardous products and services (ones that are proven to affect their health and welfare)? And in using "welfare," I’m using the general definition of a decent life, not the gov’t aid program, "well being" if you will. Why is it the greater right of people to make money and have jobs than for the public to avoid suffering cancer or asthma because of their proximity to a hazardous waste landfill, or to avoid losing their home because of risky financial ventures? Honestly – which is the greater human right? Money, or health and welfare?
I don’t think I want socialism, or Marxism as he conceived of it. I do think that financial markets should be better regulated – does that mean heavily regulated, maybe.
I do want humanism. I do want the greater good to trump wealth and privilege. This is happening in the EU. You can no longer sell products in those nations that have lead or mercury in them (i.e. electronics with lead solder). You can no longer landfill lead and mercury in the EU, so they’ve found ways to recycle what’s already around. Many other nations have adopted this method/policy as well. Guess what, the US is now one of the dumping grounds for these lead and mercury containing products, so that electronics companies may continue to use what is, for the time being, a cheaper method of manufacturing their products – so they can make greater profits on the backs of developing children. Now, the EU is already moving to ban or regulate their financial systems.
It has been this way for a long time – the primacy of industry over the common good. It’s not a political theory, but an economic and sociological one. That doesn’t mean it’s not wrong. It doesn’t mean that now we understand the results of this grand movement in world history/industrial society, that we shouldn’t correct it. It is possible. Human knowledge and understanding is now capable of creating systems in which the market can operate and people do not have to bear the burden.
Why is the primacy of the capitalist market a greater human right than health and welfare as a human in a civilized society?
Please don't flame me now because this isn't necessarily a "Democratic" thought. I know it isn't, but I'm hoping that most of you will find this a democratic ideal.